SWIP forecasts growth in German office property market
The German property market has seen significant growth in 2006 and future growth is set to be driven by an economic upturn and diverse occupier demand, according to the latest European property research from Scottish Widows Investment Partnership (SWIP).A buoyant export market and structural changes point towards improved economic growth in Germany. Traditionally a strong manufacturing economy, as Germany’s service sector grows in dominance, this will provide an additional boost to Germany’s office property markets, according to SWIP.
Frankfurt saw the largest total returns in the German office property market last year with returns reaching 32% - their highest level since 1989. This has been accompanied by positive rental growth. This is a result of a booming growth in the business and financial sectors, which now accounts for a third of employment in the city. This service sector growth boosted take-up rates for Frankfurt office property by 14% between 2005 and 2006, accompanied by low vacancy rates for Grade A buildings – a good future indictor of growth.
Looking forward, SWIP expects Hamburg to lead Germany’s office property market over the next five years, with total returns expected to be around 9% per annum over the next few years. Hamburg has seen strong economic growth and its service sector is well positioned to develop over the coming years, providing increased demand for office sector property.
Elsewhere in Germany, SWIP believes that solid growth in its financial and business services sectors places Cologne in a strong position within Germany’s office property market, alongside the traditional German office property markets of Frankfurt, Hamburg, Berlin, Munich and Düsseldorf.
Robert Matthews, Head of International Property at SWIP, commented: “The German economy has really turned a corner now and we are seeing definite signs of a cyclical upturn underpinned by strong export demand and a number of structural reforms. The German economy has traditionally had a high focus on manufacturing and there is significant scope to expand the German service sector and consequently the demand for office property. This acceleration in growth is stimulating increased demand for all types of real estate putting upwards pressure on values. We’re seeing the start of a three to four year cycle starting now which will see the German market gain confidence.
“In terms of property markets, Germany doesn’t have a single dominant city. Instead, the federal structure provides a range of centres each with their own opportunities for property investors. Our forecasts point towards steady growth in Hamburg over the next few years, where economic indicators and increased demand for office property bode well for future growth.”